Beyond Our Means: Why America Spends While the World Saves [ハードカバー]

Sheldon Garon does a great job in his analysis of the global history of small saving in the form of deposits in banks, post offices, saving bonds, or life insurance schemes mainly in Europe, East Asia, and the U.S. Mr. Garon defines small savers as the working, farming, and middle-class people who make up the bulk of any society.

The author clearly demonstrates that the U.S. has differed sharply from other (industrializing) societies in its approach to saving and consumption. This observation is particularly true for the last 30 years. Mr. Garon bases this assessment on an-depth overview of the similarities in saving institutions and campaigns across the globe for the last two centuries. Countries have assiduously learned from each other in how to convince people to save for their country and in their best interest. For example, Japan learned much about saving institutions and campaigns from Europe in the decades following the Meiji Restoration of 1868. The rest of East Asia, in turn, learned much about these saving institutions and campaigns from Japan in the most recent decades. Contemporary Europe and East Asia have backed, to a large extent, the twin missions of restraining consumption and augmenting national savings.

The current economic downturn has revealed for years how too many Americans are "financially fragile." Many Americans have not had the capacity and/or willingness to build a diversified asset mix in good times, resulting too often in overinvestment in real estate and/or the stock market, overindebtedness, and a lack of liquid assets that can be mobilized without adverse tax consequences.

To help remediate this situation, Mr. Garon makes different proposals for boosting savings:

1. Lower fees on small accounts to improve small savers' access to commercial banks. Accessibility is still a challenge in poor urban and rural areas of the U.S.;
2. Federal Government's revival of postal savings or an alternative form of a national savings bank due to the expected lack of support by most U.S. commercial banks for savings-promotion initiatives. These postal savings would be capped at a certain amount to make them accessible only to young people and families of modest means. Mr. Garon reckons that the introduction of checking and small accounts at the U.S. post offices may push commercial banks to be more favorably disposed towards small savers. Surprisingly, the author does not suggest that the U.S. post offices be a conduit to mobilize private savings to finance the rejuvenation of the U.S. infrastructure after the example of countries such as France, Japan, and Singapore mentioned in his book. This initiative would help revive the U.S. economy in dire need of higher growth rates;
3. Modify the tax laws to encourage low- and middle-income people to build assets of various types. In the excellent chapter 11, the author convincingly demonstrates that retirement savings plans and deregulation of savings institutions, which have been the two major initiatives passed since 1980 to promote saving, have mostly failed to convince the non-affluent majority to do it. Mr. Garon notes that the U.S. tax code funnels most tax benefits to wealthier savers and homebuyers, encourages overinvestment in housing, fosters overindebtedness by privileging home equity loans, and provides limited incentives to lower- and middle-income people to build assets. The author pleads for measures such as comparable tax breaks for renters, tax-free treatment of all small savings, and a tax credit instead of a deduction to universalize retirement saving accounts;
4. Encourage youth to save. Mr. Garon pushes for a nationwide financial education program that instructs young people about financial products such as savings and checking accounts, stocks, credit cards, and student loans. Furthermore, the author observed that unlike American banks, savings banks in Germany bet that youth accounts build customer loyalty, even if these accounts can be unprofitable in the short-term;
5. Promote saving in terms of "financial inclusion." Banking the U.S. population more thoroughly will give the un- and underbanked citizens a stake in their country. Mr. Garon draws the attention of his readers to the fact that in France, the banks' exclusion of some citizens is tantamount to denying people of their civil rights.

Mr. Garon is at his weakest in his in-depth analysis of small saving when he does not address in a meaningful way the deleterious impact of the monetary policy of the U.S. Federal Reserve on savings. Some Americans quite rightly will be asking themselves why they should save (more) when inflation-adjusted interest rates have been negative for years. Stripping the U.S. Federal Reserve of its mandate to ensure full employment will force the U.S. central bank to seriously focus on price stability. The further democratization of credit and homeownership that the U.S. Federal Reserve has been pursuing for years has failed to move the needle significantly in an economy badly in need of deleveraging. As James Rickards convincingly demonstrates in his recent book "Currency Wars," the U.S. Federal Reserve clearly does not deliver on its official dual mandate of price stability and full employment.

In summary, Mr. Garon makes a compelling case to further democratize saving as one means of creating a more equitable society. Public decision-makers would benefit from reading the book under review, especially chapters 3, 7, and 11.